MPs are to be banned from claiming mortgage interest on expenses after an "appropriate" transitional period, under the recommendations of Commons watchdog Sir Christopher Kelly published today.

Members of parliament will also be stopped from employing family members by the end of the next parliament or within five years, the long-awaited report stated.

Kelly, the chairman of the committee on standards in public life, insisted his proposals were "fair and reasonable" and would bring Westminster into line with other walks of life and other legislatures.

He acknowledged that his wide-ranging proposals would mean "substantial change" for MPs and said that, where necessary, they ought to be phased in with a suitable period of transition.

The stringent new rules, which come in the wake of the expenses scandal, are likely to provoke further objections from MPs, but all three party leaders have indicated their willingness to uphold them, in a bid to allay public anger over the allowances debacle.

Following the publication of the recommendations, Gordon Brown accepted Kelly's report "in full" and promised swift action on the matter.

In a letter to Kelly, he said that the new Independent Parliamentary Standards Authority (Ipsa) would begin work on the committee's recommendations immediately.

"The vast majority of MPs work extremely hard and are determined to serve the public," the prime minister wrote. "The old, discredited and flawed system of expenses has shaken the public's confidence in the conduct of those it elects to serve them.

"It is because I know that most MPs want to see the very highest standards in public life that I am determined that we sweep away this old system and introduce a new system and in doing so move back to ensuring the focus in parliament is on the issues that affect our constituents' lives."

Brown said it was right that the new system would not be "determined, administered or amended by MPs".

"I therefore agree with your recommendation that it will be for the Independent Parliamentary Standards Authority to implement the new system.

"I accept your report. We need to establish a new system to re-establish trust. Ipsa will set to work immediately and we expect they will proceed swiftly to put these changes into effect."

David Cameron, the Tory leader, and Nick Clegg, his Liberal Democrat counterpart, are also expected to support the proposals. The report will now go to Ipsa for consideration without MPs themselves being able to vote on the matter.

Among the proposals are that the generous resettlement grants for MPs who voluntarily step down will come to an end from the general election after next, with MPs receiving just eight weeks' pay instead.

Other key recommendations include giving Ipsa the power to determine the pay and pensions of MPs as well as their expenses.

On claims for mortgage interest the report said that there should be no further capital gains at public expense, and the controversial practice of "flipping" properties should no longer be possible.

Any capital gains made during the transitional period attributable to public support would have to be paid back to the taxpayer.

In future, MPs should only be able to claim for rent or hotel costs, while the expenses scheme should only cover council tax, utility bills, telephone line rental and calls, security, contents insurance, and removals at the beginning and end of a tenancy.

The costs of cleaning, gardening, furnishings and other items would not be claimable.

The committee said that MPs with constituencies within "reasonable commuting distance" of parliament should no longer be able to claim for a second home at all.

Only MPs who lose their seats or whose departure from parliament is "involuntary" should be entitled to claim the resettlement grant. Those who step down voluntarily will receive eight weeks' pay instead.

Removal of the grant should also be a sanction against MPs who are found to have "abused" the system.

The committee said that, in future, all expenses claims should be accompanied by receipts or other documentary evidence, which should be published.

It did not recommend a ban on MPs taking outside employment such as journalism, but said that any such activity should be within "reasonable limits" and "transparent", with information available to voters at election time.

MPs should also be prevented from being an MP at the same time as being a member of a devolved parliament or assembly – known as "double-jobbing" – the committee said.

Kelly argued that the recommendations should be implemented "in full" by the time of the next parliament and urged party leaders to ensure they were. A general election must be held by 3 June next year.

Kelly told a press conference: "There is a risk that, as the impact of the revulsion caused by the Daily Telegraph revelations fades with time, some may be thinking of distancing themselves from their earlier expressed determination to implement our report in full.

"If so, that would, in my view, be an error. The damage that has been done by what has been revealed about past malpractice and about the culture that goes with it has been very considerable.

"I don't believe the trust in those who govern us will be restored unless those in authority show leadership and determination in putting the abuses of the past behind them, however uncomfortable that may be."

In its introduction to the report, the committee said the unwillingness of successive governments to raise MPs' basic pay, even when recommended by independent review bodies, had created a "sense of grievance".

"It has also led to a tendency to regard the expenses system, quite wrongly, as a substitute for higher salaries," it said.

The committee acknowledged there had been "a profound crisis of public confidence in the integrity of MPs" and warned that restoring trust would be a slow process.

"The public are understandably angry about a major systemic failure in an area where they are justified in expecting the highest standards," it said.

"MPs have been able to misuse for personal gain an expenses regime which was intended simply to reimburse them for the additional costs necessarily incurred in performing their jobs.

"Anger has been fuelled further by a perception that ordinary citizens are subject to restrictions in their own working lives which were not being applied in the same way to MPs, and by the reluctance of the House of Commons as a whole to recognise the need for reform until forced to do so."